TME 035: Penny Stocks

What are penny stocks?

Low priced small cap stocks are known as penny stocks. A penny stock is pretty much anything under five dollars.

Penny Diving

I was watching a video on YouTube or the news I’m not sure which one it was. In the video a girl was looking at her cell phone. She was not watching where she was going. As she was walking she did not realize that she was walking towards a wishing well. She went into the wishing well and got soaking wet. She was diving for pennies.

If you trade penny stocks keep your eyes open or you might be like the girl in the video.

Trading Penny Stocks

Trading penny stocks can be very dangerous. The problem is that the people who make the money are the ones who know when to get in and get out. Years ago I dabbled in the penny stock market. I found that it was the quickest way to turn $1000 into pennies.

Some have dreams of grandeur when they trade penny stocks.

Pump and Dump

One particular company I traded had a tactic used called Pump and Dump. This is a tactic that is used by many that make money in penny stocks. The way they do this is pump the stock on message boards, social media, and other forms of communication.

The value of a penny stock can move a big amount with a relatively small amount of money. So as they pump the stock people begin to buy. As others are buying the pumper is selling. He makes his money and dumps then the stock crashes. The people who bought the pump are the ones losing their money. Sometimes the company will pump the stock by using news reports to hype up the company. The company I traded ran up quickly and fell quickly.

Does Every Stock Start as a Penny Stock?

This is a question that needs to be answered before you ever think about getting into penny stocks. Some people get the idea that when a company goes public it is automatically a penny stock at first. Well that is not the case. When a business goes public many times it’s not in the penny stock world. Look at Facebook when it went public. It started out between 30 and 40 dollars.

Many times companies don’t start out in the penny market.

Penny stocks that made it

There are companies that have made it in the world of penny stocks. These are companies that keep the dream alive for the current penny stock traders.

Pier 1 imports is an example that some use. It fell into the pennies because of the economic downturn I guess we can count that. Most pennies never make it out of penny land.

Are penny socks worth it?

The simple answer to that question is no. I would say that penny stocks are the quickest way to turn your hard-earned cash into pennies. Penny stocks are subject to high levels of manipulation. Many invest in the penny stock market to get rich quick. It’s not going to happen.

The next apple is not in the penny stock market. Even if there were companies coming out of the penny stock market into the NASDAQ how would you pick the right one? There are many fraudsters in the micro cap world and their goal is to separate you from your money.

Now there are good companies in the penny stock market but finding them might be like finding a needle in a haystack.